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Pritzker's Proposed Budget

Adam Schuster, Illinois Policy Institute

The Annie Frey Show
February 20, 2019 - 2:38 pm
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How would new Illinois Governor JB Pritzker's 1st budget affect Illinois residents?

Illinois Policy Institute budget and tax research director Adam Schuster says Pritzker proposed "a lot of new revenue, some of which is short term revenue, including legalizing and taxing recreational marijuana, taxing vaporizers, e-cigarettes, expanding gambling and taxing that. 

A lot of sort-of 'sin-taxes'.   In the long-run, he proposed a progressive income tax, which he claims will be fair."

Schuster says the Illinois Policy Institute says there is an alternative to a massive tax hike.

Listen here:

Illinois Policy released a guide on what to know for the address below.

WHAT TO KNOW

Budget 

Illinois’ budget is estimated to be between $2.8 and $3.2 billion out of balance, and the state has another $8 billion in unpaid bills. Illinois has not had a balanced budget since 2001.

Pritzker is projected to propose $440 million in new spending for government social service agencies, despite his promise to balance the budget during his first year in office.

In the past decade, state spending has outpaced personal income growth by nearly 50 percent.

Solution: Illinois needs a spending cap that ties state spending to what taxpayers can afford. Legislation to achieve this reform has received bipartisan support. SJRCA 10 is a constitutional amendment spending cap proposal sponsored by state Sen. Tom Cullerton, D-Villa Park.

Taxes

To provide new revenue, Pritzker may suggest a temporary income tax hike, a progressive income tax or an income tax structure that artificially creates tiered rates through deductions. An artificial progressive income tax like this may be considered unconstitutional.

A progressive income tax would require a constitutional amendment, which wouldn’t appear before voters until 2020. The state couldn’t begin collecting revenue from it until fiscal year 2021.

Lawmakers in the General Assembly filed House Resolution 31 in opposition to a progressive income tax. Democrats and Republicans have signed on to champion this resolution.

Despite claims of “fairness,” states with a progressive income tax see the gaps between the rich and the poor increase faster than states without a progressive tax.

A progressive income tax that cuts taxes for 99 percent for Illinoisans could never raise enough revenue to pay for new programs while also providing property tax relief and paying down the state’s debt.

Solution: Reject a progressive income tax. A progressive income tax would hike taxes on every Illinoisan, hitting the middle class the hardest. Illinois doesn’t need a progressive income tax; it needs structural reforms to government pensions and other top cost drivers.

Pensions

Illinois’ pension debt is an estimated $133 billion, and current pension payments take up a quarter of the state’s budget.

To ease the burden, Pritzker has floated the idea of stretching Illinois’ pension payments out and issuing a $2 billion pension obligation bond. These concepts have failed every time, as they neither improve Illinois’ credit rating nor reduce the risk that the funds eventually become insolvent.

Pension obligation bonds are only useful if the interest paid on the bonds is lower than the return on investment in the pension funds, a risky gamble as Illinois borders a junk credit rating. Numerous credit rating agencies have warned against this approach.

Former Illinois Govs. Rod Blagojevich and Pat Quinn both issued several pension obligation bonds, which cost taxpayers nearly double what the bonds were worth, while Gov. Jim Edgar is responsible for shorting the system by stretching out payments.

Solution: The only way Illinois can guarantee pensions remain solvent is to create real, lasting reform through a constitutional amendment that protects already-earned pension benefits while allowing for changes in the future growth rate of benefits.